Posted by & filed under Financial Reporting.

20 March 2013

 

Mr H Hoogervorst
Chairman
International Accounting Standards Board
30 Cannon Street
London EC 4M 6XH
UNITED KINGDOM

Dear Mr Hoogervorst

ED/2012/4 Classification and Measurement – Limited Amendments to IFRS 9

The Group of 100 (G100) is an organization of chief financial officers from Australia’s largest business enterprises with the purpose of advancing Australia’s financial competitiveness. We are pleased to provide comments on the Exposure Draft.

Q1 Do you agree that a financial asset with a modified economic relationship between principal and consideration for the time value of money and the credit risk could be considered, for the purposes of IFRS 9, to contain cash flows that are solely payments of principal and interest? Do you agree that this should be the case if, and only if, the contractual cash flows could not be more that insignificantly different from the benchmark cash flows? If not, why and what would you propose instead?

The G100 considers that the proposals provide a reasonable and pragmatic outcome that recognises the practical reality that entities may invest in debt instruments with the intention to earn yield but retain the flexibility to sell those instruments on advantageous terms consistent with the entity’s business model.

Q2 Do you believe that this ED proposes sufficient, operational application guidance on assessing a modified economic relationship? If not, why? What additional guidance would you propose and why?

The G100 considers that further guidance could be provided to illustrate the distinction between instruments satisfying the fair value – other comprehensive income category and those satisfying the fair value through profit and loss category.

Q3 Do you believe that the proposed amendment to IFRS 9 will achieve the IASB’s objective of clarifying the application of the contractual cash flow characteristics assessment to financial assets that contain interest rate mismatch features? Will it result in more appropriate identification of financial assets with contractual cash flows that should be considered solely payments of principal and interest? If not, why and what would you propose instead?

Yes.

Q4 Do you agree that financial assets that are held within a business model in which assets are managed both in order to collect contractual cash flows and for sale should be required to be measured at fair value through OCI (subject to the contractual cash flow characteristics assessment) such that:

  1. Interest revenue, credit impairment and any gain or loss on derecognition are recognised in profit or loss in the same manner as for financial assets measured at amortised cost; and
  2. All other gains and losses are recognised in OCI?

If not, why? What so you propose instead and why?

The G100 agrees with the proposed approach of creating a third category for accounting purposes, which is consistent with the entity’s business model, as a pragmatic outcome.

While this may involve more judgment being exercised it acknowledges that different business models apply and that the method of accounting should reflect the effects of applying that model.

Q5 Q8 Do you agree that entities should be permitted to choose to early apply only the ‘own credit’ provisions in IFRS 9 once the completed version of IFRS 9 is issued? If not, why and what do you propose instead?
The G100 believes that entities should be able to early-adopt the ‘own credit’ provisions in IFRS 9 on the basis that the final requirement provides more relevant information to shareholders and other users.

Yes, the ED provides sufficient guidance.

Q6 Do you agree that the existing fair value option in IFRS 9 should be extended to financial assets that would otherwise be mandatorily measured at fair value through OCI? If not, why and what would you propose instead?

Yes, we agree with the proposal.

Q7 Do you agree that an entity that chooses to early apply IFRS 9 after the completed version of IFRS 9 is issued should be required to apply the completed version of IFRS 9 (ie including all chapters)? If not, why? Do you believe that the proposed six-month period between the issuance of the completed version of IFRS 9 and when the prohibition on newly applying previous versions of IFRS 9 becomes effective is sufficient? If not, what would be appropriate period and why?

The G100 agrees with the proposals that upon finalisation of IFRS 9, excluding macro hedging requirements:

  • entities wishing to early adopt its requirements must early-adopt IFRS 9 in its entirety and not particular sections or chapters; and
  • the six month transition period in respect of annual financial statements.

The phased introduction and ability to early-adopt parts of IFRS 9 has caused some confusion as to which set of requirements have been applied and has contributed to a loss of comparability of information.

Q8 Do you agree that entities should be permitted to choose to early apply only the ‘own credit’ provisions in IFRS 9 once the completed version of IFRS 9 is issued? If not, why and what do you propose instead?

The G100 believes that entities should be able to early-adopt the ‘own credit’ provisions in IFRS 9 on the basis that the final requirement provides more relevant information to shareholders and other users.

Q9 Do you believe there are considerations unique to first-time adopters that the IASB should consider for the transition to IFRS 9? If so, what are those considerations?

We have no further comments in respect of first-time adopters of IFRSs.

 

Yours sincerely
Group of 100 Inc

 

Terry Bowen
President


© 1998-2015 Group of 100 Inc. ABN 398 391 246
Email the Group of 100 with questions or comments.